10-K/A 1 d10ka.txt FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended March 31, 2001 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to _____________ Commission file number: 0-27801 DATA RETURN CORPORATION ----------------------- (Exact name of registrant as specified in its charter) Texas 75-2725998 (State of incorporation) (I.R.S. employer identification number) 222 West Las Colinas Boulevard, Suite 450, Irving, Texas 75039 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (972) 869-0770 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.001 Per Share Preferred Stock Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Aggregate market value of Common Stock held by nonaffiliates as of July 23, 2001: $16,444,530 Number of shares of Common Stock outstanding as of July 23, 2001: 36,113,929 DOCUMENTS INCORPORATED BY REFERENCE Listed below are documents parts of which are incorporated herein by reference and the part of this report into which the document is incorporated: None. 1 The following items of our Annual Report on Form 10-K for the fiscal year ended March 31, 2001 are hereby amended. Each such item is set forth herein in its entirety, as amended. PART ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................... 3 III ITEM 11 EXECUTIVE COMPENSATION............................................... 4 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....... 7 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 8

================================================================================ 2 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information with respect to the executive officers of Data Return is set forth under the caption "Executive Officers of the Registrant" in Part I of this report. Our directors are: Sunny C. Vanderbeck, a co-founder of the Company, has served as Chairman and Chief Executive Officer since our incorporation in August 1997. Before founding Data Return, from July 1996 to January 1997, Mr. Vanderbeck was a technical product manager and Lead Internet/Intranet Consultant for Software Spectrum, a reseller of Microsoft products. From May 1995 to June 1996, while employed by Software Spectrum, Mr. Vanderbeck served as an independent consultant to Microsoft where he served as a team leader for Microsoft Messaging products and as a product support engineer. From July 1994 to May 1995, Mr. Vanderbeck was an independent consultant. From 1990 to 1994, Mr. Vanderbeck served as a Section Leader in the 2nd Ranger Battalion, a U.S. Army Special Operations unit. Michelle R. Chambers, a co-founder of the Company, has served as President and a director since our inception and served as Chief Operating Officer from April 1998 until March 2001. Before founding Data Return, from October 1996 to March 1997, Ms. Chambers was a Consultant at Microsoft, where she was a member of the Microsoft Consulting team responsible for the design and development of the migration plan for Audionet's (now Yahoo! Broadcast) platform conversion from Unix to Windows NT. Prior thereto, Ms. Chambers served as a product support engineer at Microsoft from February 1995 to October 1996, and was the Corporate E-mail Coordinator for Arco Exploration and Production Technology from August 1993 to February 1995. Ms. Chambers is a Microsoft Certified Systems Engineer. Jason A. Lochhead, a co-founder of the Company, has served as Vice President - Chief Technology Officer since November 1999 and previously served as Vice President - Research and Product Development. Mr. Lochhead has served as a director since the Company's inception. From September 1996 until August 1997, Mr. Lochhead was an independent consultant. Previously, from September 1995 to September 1996, while employed by Software Spectrum, Mr. Lochhead served as an independent consultant to Microsoft where he served as a product support engineer for Microsoft Mail and Microsoft Exchange. While at Software Spectrum, Mr. Lochhead also served as the Microsoft Mail Gateway team lead for the period from March 1996 to September 1996. From July 1993 to September 1995, Mr. Lochhead was a System Administrator at Hughes Training, a division of Hughes Aircraft. Mr. Lochhead is a Microsoft Certified Systems Engineer. Joseph M. Grant has served as a director since April 2000. Mr. Grant has been Chairman of the Board and Chief Executive Officer of Texas Capital Bancshares, Inc. since April 1998. Mr. Grant served as Chief Financial Officer of Electronic Data Systems, Inc. ("EDS") from December 1990 to March 31, 1998 and an Executive Vice President after the consummation of the split-off of EDS from General Motors Corporation on June 7, 1996. Prior to that time he had been a Senior Vice President of EDS since February 1992. Prior to joining EDS in December 1990, he served as executive vice president and chief systems officer for American General Corporation from 1989 to 1990 and as chairman of the board and chief executive officer of Texas American Bancshares Inc. from 1986 to 1989. Mr. Grant has a bachelor's degree from Southern Methodist University. Mr. Grant also earned a M.B.A. in finance and a Ph.D. in finance and economics from the University of Texas at Austin. Robert Ted Enloe, III has served as a director since August 2000. Mr. Enloe has been managing partner of Balquita Partners, Ltd., a real estate and securities investment partnership, since 1996. Mr. Enloe served as a member of the Officer of the Chief Executive of Compaq from April to July 1999. From 1975 to 1996 he was President, and from 1992 to 1996 Chief Executive Officer, of Liberte Investors, Inc. Mr. Enloe is also a director of Leggett & Platt, Inc., Advanced Switching Communications, Inc. and Compaq Computer Corporation. 3 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth the total compensation of the Company's Chief Executive Officer and the other four most highly compensated executive officers whose total salary and bonus for fiscal 2001 exceeded $100,000 (each a "named executive officer," and collectively, the "named executive officers").

__________________ (1) Other annual compensation for Mr. Shiff consists of deferred salary. (2) Other annual compensation for Mr. Garber and Mr. Shiff consists of commissions. 4 Option/SAR Grants in Fiscal 2001

(1) The values shown are based on the indicated assumed annual rates of appreciation compounded annually. Actual gains realized, if any, on stock option exercises and Common Stock holdings are dependent on the future performance of the Common Stock and overall stock market conditions. There can be no assurance that the values shown in this table will be achieved. (2) Each amounts represents a single grant of options. One-fourth of each grant becomes exercisable on each of the four one-year anniversaries immediately succeeding the grant date (which is ten years before the expiration date). Fiscal 2001 Exercises and Year-End Option Values The following table sets forth information concerning the value realized upon exercise of options during fiscal 2001 and the number and value of unexercised options held by each of the named executive officers at March 31, 2001. The values set forth in the table have been calculated using the last reported sales price on March 31, 2001, less the per share exercise price, multiplied by the number of shares underlying the option.

(1) Based on a closing price of $3.00 at March 31, 2001. Employment Agreements Sunny C. Vanderbeck, Michelle R. Chambers, Robert A. Prosen and Stuart A. Walker have employment agreements expiring on June 30, 2002. These agreements provide for: . set base salaries; and . incentive bonuses determined by the compensation committee or Board of Directors. 5 Each of these executives has agreed not to compete with us during the term of the agreement and for two years after resignation or termination for cause or for one year after a termination without cause or any resignation or termination following a change of control. The employment agreements define "cause" as an employee committing an immoral crime, materially breaching the employment agreement or failing to obey written directions of a senior corporate executive. A "change of control" will be deemed to occur if a substantial portion of our ownership changes or the constitution of the board changes during any 15-month period without the approval of our Board of Directors or shareholders. If there has not been a change in control, the agreements provide for the payment of salary for 12 months after any termination by the Company other than for cause. Further, if the termination follows a change of control and is not voluntary, it will be made in a lump sum equal to three times the following items: . the highest annualized base salary earned during the employee's employment with us; . two times the employee's largest bonus during the last two years; . any unpaid expense, reimbursement or accrued but unpaid salary or benefit; and . the estimated cost of insurance coverage for the next 12 months. If the termination is following a change of control and is voluntary, the base salary component of these severance payments will equal 75% of the highest annualized base salary earned during the employee's employment with the Company. In addition, upon a change of control, all outstanding options of Mr. Vanderbeck, Ms. Chambers, Mr. Prosen and Mr. Walker will vest. The Company also has employment agreements with Mr. Shiff, Mr. Garber and Mr. Steitle. Mr. Shiff's agreement expires on December 31, 2002. His agreement provides for a set base salary plus deferred salary and a fixed performance bonus. Mr. Shiff's agreement provides for the payment of all accrued salary and bonus upon his termination by Data Return. Upon a change of control, all of Mr. Shiff's outstanding unvested options will vest immediately. Mr. Shiff has agreed not to compete with the Company during the term of his agreement and for one year after his termination. Mr. Garber's agreement expires on March 31, 2004. His agreement provides for a set base salary plus commissions. Upon a termination of his employment by Data Return without cause, Mr. Garber is entitled to the payment of salary for 12 months and the right to participate in benefit plans and exercise his outstanding options for 12 months. Upon change of control, 50% of Mr. Garber's outstanding unvested options vest immediately and the remaining 50% vest one year later. If Mr. Garber is terminated following a change of control, he is entitled to 12 months of salary and all of his outstanding unvested options immediately vest. Mr Garber has agreed not to compete with the Company during the term of the agreement and for one year after resignation or termination for cause. Mr. Steitle's agreement expired on May 3, 1999 and was automatically renewed for a one-year period in May 1999, 2000 and 2001. His agreement will continue to be renewed automatically for one year periods unless terminated by either party upon notice at least 15 days prior to a renewal date. Mr. Steitle is entitled to a set base salary. Upon termination other than for cause, Mr. Steitle is entitled to his accrued salary. Upon a change of control, or if Mr. Vanderbeck and Ms. Chambers cease to be executive officers, all of Mr. Steitle's unvested options immediately vest. Mr. Steitle has agreed not to compete with us during the term of his agreement and for one year after his agreement. Compensation Committee Interlocks and Insider Participation No officer or employee of the Company or its subsidiaries is a member of the Company's compensation committee. Compensation of Directors 6 The Company does not pay cash fees to any of its directors for serving on the Board of Directors. However, the Company does reimburse directors for travel, lodging and related expenses they may incur in attending Board and committee meetings. In addition, under the 1999 Long-Term Incentive Plan, which was approved and ratified by shareholders in fiscal 2000, non-employee directors receive a one-time grant of an option to purchase 100,000 shares of Common Stock. The options are granted at fair market value on the grant date. On the grant date, 25% of the grant is immediately vested, and the remaining 75% vests in three, equal annual installments beginning one year after the grant date. The options expire 10 years from the grant date. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of our common stock as of March 31, 2001 by (i) each director, (ii) each person known to us to own beneficially 5% or more of our common stock, (iii) each named executive officer and (iv) all current directors and executive officers as a group. Except as otherwise indicated, the address of each beneficial owner of 5% or more of our common stock is 222 West Las Colinas Boulevard, Suite 450, Irving, Texas 75039. Includes shares of common stock directly and indirectly owned and shares of common stock underlying currently exercisable options as well as those options which will become exercisable within 60 days of March 31, 2001. Except as otherwise indicated, the named persons herein have sole voting and dispositive power with respect to beneficially owned shares.

* Less than 1%. (1) The common stock beneficially owned by DCR Technology Fund I, Ltd., a Texas family limited partnership controlled by Mr. Vanderbeck, consists of 8,166,315 shares of our common stock. The common stock beneficially owned by Mr. Vanderbeck also includes 6,250 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. 7 (2) The common stock beneficially owned by OHG Technology, Ltd., a Texas family limited partnership controlled by Ms. Chambers, consists of 6,457,255 shares of our common stock. The common stock beneficially owned by Ms. Chambers also includes 6,250 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (3) Consists of 722,030 shares of our common stock owned by Mr. Lochhead and 2,500 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (4) Consists of 3,400 shares of our common stock owned by Mr. Grant and 8,333 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (5) Includes 37,500 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (6) Consists of 3,239,950 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (7) Includes 431,750 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (8) Includes 252,925 shares of our common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. (9) Includes 4,090,210 shares of our common stock owned by Nathan Landow Family Limited Partnership, which is controlled by Mr. Landow. The address for Nathan Landow Family Limited Partnership is 4710 Bethesda Avenue, Bethesda, Maryland 20814. (10) Includes 4,522,471 shares of common stock issuable pursuant to options that are exercisable within 60 days of March 31, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In January 2001, we entered into a guarantee with a financial institution pursuant to which the Company guaranteed up to $5.0 million of the margin debt of a Texas family limited partnership (an estate planning entity) owned by Sunny C. Vanderbeck, the Chairman of the Board and Chief Executive Officer of the Company. In June 2001, this guarantee was replaced with a new guarantee that reduced the amount to $2.0 million. Based on a closing price of $1.95 on June 22, 2001, the value of the collateral in the limited partnership's account with this financial institution exceeded the amount of the margin debt by approximately 50%. As of July 26, 2001, Mr. Vanderbeck had approximately $3.4 million in margin debt with this financial institution secured by approximately 2.1 million shares. Mr. Vanderbeck also has margin debt of $2.6 million with another financial institution secured by 3.9 million shares of our common stock. We have not guaranteed any portion of the second margin account. Pursuant to a letter agreement with the limited partnership and Mr. Vanderbeck, if we are is required to pay any amounts under the guarantee, the limited partnership and Mr. Vanderbeck would be required to repay any such amounts. Mr. Vanderbeck has also granted to us a security interest in certain properties. Mr. Vanderbeck and the limited partnership are required to take steps to reduce the amount of the margin debt to a sufficient level to allow the guarantee to be released as soon as reasonably practicable. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Data Return Corporation Date: July 27, 2001 By: /s/ Sunny C. Vanderbeck ---------------------------------- Sunny C. Vanderbeck Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following individuals on behalf of the Registrant and in the capacities and on the dates indicated.

DATA RETURN CORP 10-K/A